Who Gets JPMorgan's Settlement Cash?

The U.S. Justice Department this week announced a $13 billion settlement with JPMorgan Chase. Now that's the largest settlement the federal government has ever made with a single company. The settlement deals with the deluge of toxic mortgages that flooded financial markets during the housing bubble.

Four billion dollars will go to try to help homeowners who've been hurting in the wake of the crash. NPR economics correspondent Chris Arnold's been following this and joins us now. Chris, thanks so much for being with us.

CHRIS ARNOLD, BYLINE: Absolutely, thanks Scott.

SIMON: What did JPMorgan allegedly do with these mortgages that were sometimes called garbage loans?

ARNOLD: Allegedly, what this bank was doing is that it was caught packaging up these garbage loans into securities and then telling investors that these loans were good loans and you should buy them, basically, when in fact some people at the bank knew that a lot of the loans were trash, and investors should have been told about that.

SIMON: What do homeowners potentially get out of this?

ARNOLD: Well, probably the biggest thing that homeowners get is that out of this $4 billion that's slated for homeowners, 1.5 billion will go towards principal reductions and that is writing down the principal for some borrowers who were underwater, the goal being to avoid foreclosure. So, if somebody owes $400,000, JPMorgan can say, OK, now, look, your house is only worth $300,000. Let's just say you owe that and we'll give you a more affordable interest rate. You get to keep your house, we lose less money because we avoid a foreclosure.

SIMON: So far, haven't banks been hesitant to forgive debts like that?

ARNOLD: Wall Street analysts who track this stuff found that if it's done right, this is the best way to mitigate banks' losses; that keeping people in their house is cheaper ultimately then taking their house away, for all kinds of reasons. So when Wall Street analysts started recognizing this, that helped to get the banks to be more willing to do it, and settlements like this try to push them further in that direction.

SIMON: What about the rest of the $4 billion in consumer relief?

ARNOLD: Well, there's some money that will be spent on blight abatement, where foreclosures happened all around a neighborhood and there's all these abandoned properties, so they might tear some of them down and, you know, help make things look better. I'm also told that there'll be an effort made to reach out to the long-term unemployed and find ways to - where they can't even make a payment for a while, they don't qualify for a loan modification, find ways to keep them in their homes until they can find a job.

SIMON: Are there features in this agreement that housing advocates don't like?

ARNOLD: I'd say the biggest concern is what if the bank just does $4 billion worth of stuff that it was going to do anyway, you know. Like we said, the industry's been doing more of these principal reductions. That's the most powerful part of this for homeowners. So at some point there needs to be oversight in this that's strong enough to make sure this isn't just an accounting gimmick and the bank really does stuff it wasn't going to do anyway.

SIMON: Chris, all these initiatives to help homeowners since the housing crisis began, looking back, how helpful have any of them been?

ARNOLD: Well, back when the Obama administration first came into office, they launched a program, and that was supposed to reach four million homeowners and keep them in their houses. That's been pretty disappointing. It's reached a million. So I guess the glass is a quarter full there, but at the same time that supposedly has taught the industry some best practices and so banks themselves are doing more of these modifications outside of that federal program.

So things are improving, but there are still people who should quality for help who aren't getting it and a lot of problems remain.